Regulators propose single mortgage-backed security for Fannie and Freddie

Looking to improve liquidity and move the ball forward on housing-finance reform, the regulator of Fannie Mae and Freddie Mac is requesting comment on creating a single mortgage-backed security for the finance giants, officials said Tuesday.

“The enterprises currently issue two different mortgage securities that are not interchangeable with one another, and Freddie Mac’s security has historically traded less favorably compared to Fannie Mae’s security,” according to a May FHFA report.

With a deeply divided Congress unable to agree on substantial housing-reform legislation, FHFA’s latest proposal is one example of an administrative action to improve the functioning of the housing market. Legislation would not be needed to move this project forward, FHFA officials said.

The FHFA has been considering the creation of a common securitization platform for Fannie and Freddie for several years, moving away from the current model in which each enterprise executes securitizations. The single-security proposal is part of that effort.

On Tuesday officials proposed that the single security’s features would be close to those in current Fannie securities, and that its disclosure framework would be similar to Freddie’s.

Key issues are making sure that liquidity is high for legacy and new securities, and that legacy securities would be fungible with the new securities. FHFA said it would like input on topics such as: